The Treasury hopes to raise more than £4bn a year through the changes
The Treasury is due to announce sharp restrictions on the amount of tax-free income that savers can put in pensions.
The annual limit is expected to be reduced from £255,000 to £40,000.
There is also likely to be a stricter formula to control the amount of pension which can be built up in the most generous final salary schemes.
The Treasury hopes the changes will eventually save it more than £4bn a year – which could be used to reduce the budget deficit.
It is also thought it will reduce the lifetime allowance on money that can be built up in a pension fund and receive tax relief from £1.8m to £1.5m.
But it is expected to continue allowing high earners to benefit from tax relief at 40% or even 50%.
Under the Treasury plan, a £40,000 limit to the annual allowance – after which an extra tax bill would be generated – might be exceeded by someone whose pension entitlement in a final salary scheme had risen by just over £2,000 in a year.
The coalition government began a consultation after the Labour government announced plans to gradually reduce the tax relief available on pension contributions for people earning more than £150,000 to just 20%, despite the fact that these people pay income tax of 50%.
It is due to announce the results of its consultation on the issue later.
The Treasury consultation document illustrated the possible effects of the new approach for the Exchequer.
Its figures suggested that by 2012-13, a £45,000 annual pension allowance would raise a similar amount to that expected under Labour’s plans – in the region of £3.6bn.
But a lower £30,000 annual allowance would raise £4.8bn – £1.2bn more than Labour intended.
This article is from the BBC News website. © British Broadcasting Corporation, The BBC is not responsible for the content of external internet sites.
